What is dropshipping?
One of the easiest ways to set up an ecommerce business, dropshipping is a great way to test out your skills as an online or ecommerce entrepreneur.
To put it simply, dropshipping means that you don’t have a warehouse or stockroom with physical products: instead, everything you sell is shipped directly to the customer by a supplier.
Unlike the traditional retail model, where customers buy goods directly from a merchant, a dropshipping retailer acts as a facilitator, and does not hold any inventory. A dropship store owner will not see or handle the goods he or she is selling during the buying process.
The goods are shipped by a third party company (often a manufacturer or wholesaler) and are ordered by the dropship store owner on an order-by-order basis.
The dropshipping process explained
Dropshipping follows a simple order process:
- Your customer buys a product from your store — they visit your online store, place an order, and you approve it
- You contact the supplier with the order and customer details — often this is as straightforward as forwarding the order confirmation email (which can be automated) to the dropshipping supplier
- The supplier sends the order directly to your customer — your supplier packages the goods with your branding and sends them directly to your customer. Your customer has no knowledge of this step
- You inform your customer their goods are being shipped — Your supplier will send you a tracking number. Once you have this, you then need to notify your customer, and do any other post-sales followups.
The supplier is essentially invisible to the customer in this process, especially if you opt for branded packaging. Branded packaging is highly recommended from a customer experience point of view, and pretty standard across the dropshipping industry.
While all dropshipping orders will broadly follow this process, the exact steps will depend on the provider that you select to build your online store.
What are the pros of a dropshipping business?
This easy-to-follow business model has a lot of benefits and these include:
- Very low start-up costs
- Low order fulfilment costs
- You can test out products before committing to adding them to your business
- Can be run from anywhere because the whole business management happens online
- No need for an inventory
- No need to pay for a warehouse
- Less need for staff
- Able to sell a variety of products
- Not very time-consuming, as the picking, packing, and shipping is done by someone else
- Remote working or team friendly
- Can be run by creatives and marketers, rather than tech people.
What are the cons of running a dropshipping business?
Despite being a solid business model, there can be downsides to dropshipping and these are:
- Profit margins are smaller because of the lack of bulk pricing
- Lack of control over the logistics — Some manufacturers and wholesalers can have long delivery times, which is bad for customer experience
- Complex returns process
- Complex taxation
- Sole responsibility for customer issues
- A competitive market, so lots of rival companies
- Many niche areas have already been taken
- Developing a brand identity can be more difficult, as the products you’re selling aren’t unique
- Dropshipping products are not unique so you run the risk of selling generic products
- Lack of control over product development
- Small communication issues can cause enormous problems.
Expert advice on running a dropshipping business
While there are many things that you need to do in order to run a successful dropshipping business, the top three pieces of advice that I can give you are:
- Select the right dropshipping company – you’re trusting the long-term future of your business to the supplier you choose. If they provide a poor service it’s your company which will suffer
- Have your customer service process spot on – as you’re not in control of the shipping process, you need to have planned for every eventuality and have a clear, consistent, and swift response in place (or a method of arriving at one quickly)
- Get your brand identity right – there will be countless companies using the same stock as you. You need to be able to persuade your customers that your products are unique and special so that it is your goods they buy.
What products can I sell through dropshipping?
One of the great things about dropshipping is that you can sell pretty much anything. Take AliExpress. It’s one of the biggest dropshipping resources in the world and gives you the facility to sell:
Dropshipping product ideas
- Mobile phones
- Nail varnish
- Fishing tackle
- Running shoes
- Children’s prams
- Playing cards
- Digital cameras
In fact, AliExpress has more than 100 million products that you can choose to sell.
And using a supplier to sell existing physical products isn’t the only dropshipping method available to you. Print on demand allows you to sell your own custom-designed goods on an order-by-order basis. This means you can sell a variety of products.
Print on demand product ideas
There are many more goods that you can sell using print on demand, with Printify, as an example, offering hundreds of items that you can sell.
You should select your products with your profit margin in mind and there are a number of factors to consider when you do this, such as:
- Smaller items cost less to ship, however, you will need to sell more of them to make a significant profit
- Larger items cost more to ship, however, you will often be able to make a greater profit on these
You should consider how you can add value to the items you sell. For instance, if you start by selling underwear, can you then add other clothing items to your brand? Or do the items you sell have the potential for you to upsell – for example, selling a mobile phone case with a portable charger? Can you create brand value in other ways?
Being able to scale up is one of the best features of dropshipping, so don’t cut your long-term revenue potential by selecting a niche that won’t allow you to scale up.
Picking the right theme for your dropshipping store
However, it’s not just about what you sell. It’s also about how you sell. Selecting the right theme for your dropshipping has a impact on both your brand identity and the ease with which you can sell your products:
- Selecting a generic theme means your business won’t stand out against your peers – and as you are selling generic products you give your customers less reason to buy from your business
- Picking a generic theme without thinking about the UX means that it may be more difficult for your customers to navigate to the section of your store that they are looking for – if they can’t find what they want they won’t buy it.
What platform should I use for my dropshipping store?
The themes available for your dropshipping business depend upon the provider you choose to build your online store with. This makes picking the right provider for you one of the most important parts of setting up your dropshipping business.
Your options fall into two categories:
A self-hosted solution means that you will look after the hosting, along with a number of other factors, yourself. There are a number of pros and cons to using a self-hosted dropshipping solution:
- You can customise to a greater extent
- You own the code, content, and all other aspects of your store
- You will have lower enforced start up costs
- Hidden costs mean that your actual start up costs could be much higher than you anticipated
- It’s time consuming
- If something goes wrong the onus is on you to fix it.
Using a hosted solution means that you pay a provider to use their technology to set up your dropshipping store. In return it provides you with hosting, and a list of other features. Among the different pros and cons of using a hosted solution are:
- You will get a designated customer and community support network
- You pay one monthly fee and that gives you a range of features
- Your website will be more secure
- By renting your website, you are at the mercy of your provider
- There are limitations on the functionality of your website
- It’s difficult to move from one hosted solution to another (or a self-hosted solution).
Popular platforms that are very user friendly include WooCommerce (self-hosted) and hosted options like Shopify, Squarespace, BigCommerce and Wix. Once you’ve got a list of prospective options, be sure to weigh up the pros and cons before jumping in. Alternatively, if you’re tech savvy and want to maximise your profits by cutting hosting fees, you should consider a self-hosted ecommerce site.
Shopify dropshipping guide
Shopify is one of the most popular hosted solutions available. It serves more than 600,000 merchants and is one of the biggest names in ecommerce.
Some of the key points about using Shopify for dropshipping are:
- You don’t need advanced coding skills to use it
- There are over 100 online store designs you can select from
- It comes with 24/7 support
- You will have to pay a monthly fee to use it
WordPress dropshipping guide
WordPress is the largest CMS on the planet. It is used by over 60 million websites and is estimated to power 30% of the internet.
A few of the main things to know about WordPress are:
- You will need some website development and building skills in order to create your website
- It doesn’t have a support network but there is an enormous community of developers
- The software is free to use but you will have to buy a domain name and pay for hosting
- It has a wide-range of plugins and extensions
Dropshipping with Oberlo
One of the most popular entry points into dropshipping is to use Oberlo. Oberlo is a marketplace that enables you to find and import items from AliExpress to an online store built using Shopify.
You pay the wholesale price for the goods before selling them on to your customers at your own price, with the shipping dealt with by the supplier(s) you found on AliExpress.
While you have to pay to set up an online store with Shopify, the basic Oberlo plan is entirely free. This allows you to add 500 products to your store, raise 50 orders a month, and gives you access to a range of features, including:
- Daily product syncing
- Sales reports
- Dispute management
- Automated tracking numbers
- Bulk order placement
Could dropshipping work for me?
Anyone with proficient computer skills can start their own ecommerce business using the dropshipping model. Thanks to platforms mentioned above, it’s pretty easy to get a shop up and running, so it’s ideal for business novices.
However, it’s important that you don’t jump into launching a shop before you’ve done your market research. This includes looking at competitor ecommerce stores to suss out their stock and using search analytics to see what consumers are looking for. It also helps if you are a good communicator, as it’s likely that you’ll be dealing with numerous suppliers as well as your customers.
Dropshipping isn’t the only way for you to start your own online business and before you decide whether you want to opt for this business model, you should review some of the other methods and decide which one works best for you. See our guide below on some of the other business models:
|Business model||Startup cost||Staff needed||Pros||Cons|
|Affiliate marketing||£500 – £2,000||1*|
Legalities of dropshipping in the UK
Some people may feel that dropshipping doesn’t quite feel legitimate, or even legal — but it’s a common business model and most large-scale stores employ an element of dropshipping alongside selling their own physical stock.
However, while dropshipping is a completely legal form of ecommerce, there are legal considerations that you need to be aware of when setting up your own dropshipping business.
The most important of which is the legal entity you select for your business. (This is the same for any new business owner, irrespective of the model they choose).
Protect your business from liability
Problems can arise in any business, and it is important that you protect yourself and your personal assets from liability in the event of financial compensation being sought, or legal action.
In order to do this you will need to set your dropshipping up as a legal entity. There are a number of options you can choose from in the UK:
- Sole Trader: This makes no separation between your personal assets and your business – all of your income is considered to be one and the same. This means that if a claim is made against you then your own assets (including your home) can legally be used to settle any costs – your spouse’s assets may also be stripped too.
- Private Limited Company (LTD): This makes your company a legal entity in its own right, separating your private and business assets. The liability of shareholders is restricted to their own investment and any unpaid shares which are owned by them.
- Public Limited Company (PLC): Like an LTD, a PLC is a legal entity in its own right and separates the liability of your business from your own assets, with shareholder liability the same as an LTD. A PLC differs from an LTD in that the shares can be traded on the public market
- Guarantee Company (Non Profit): These are not-for-profit companies. The persons in charge of the business are classed as decision makers rather than owners.